The UK is set to be the only major economy to experience net negative growth over the course of 2023, according to economic forecasts published on Monday by the International Monetary Fund (IMF).
In its latest World Economic Outlook report, the fund predicted that the British economy will contract by 0.6% this year — a significant downward revision from its earlier October estimate of 0.3% growth.
The IMF's deepening pessimism regarding the UK's economic prospects contrasts markedly with its increasingly optimistic outlook for the world as a whole. In particular, the fund now predicts that the global economy will grow by 2.9% this year (up 0.2 percentage points from its previous forecast), and also upwardly revised its 2023 predictions for the US (to 1.4% from its 1% October estimate), Germany (to 0.1% from -0.3%), and the eurozone area (to 0.7% from 0.5%)
Remarkably, the IMF also predicts that the UK economy will fare even worse this year than sanction-hit Russia, which it estimates will grow by 0.3%. The fund had previously forecast that Russia's economy would contract by 2.3% this year.
Chancellor of the Exchequer Jeremy Hunt almost immediately attempted to downplay the significance of the report.
"These figures confirm we are not immune to the pressures hitting nearly all advanced economies," he said. "Short-term challenges should not obscure our long-term prospects — the UK out-performed many forecasts last year, and if we stick to our plan to halve inflation, the UK is still predicted to grow faster than Germany and Japan over the coming years."
One particularly notable feature of the report, however, was its strong suggestion that the UK's worsening economic prospects are largely self-inflicted. In particular, the fund claimed that the UK's downward revision "reflect[ed] tighter fiscal and monetary policies and financial conditions and still-high energy retail prices weighing on household budgets" — a thinly veiled criticism of Hunt's own fiscal plan of tax hikes and budget cuts introduced in November last year, as well as of the Bank of England's own exceedingly hawkish approach to tackling inflation.
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IMF chief economist Pierre-Olivier Gourinchas further explained that the fund's revised forecast of the UK's economic prospects is primarily due to three factors, namely the country's major dependence on (expensive) liquefied natural gas, its low employment numbers, and its central bank's "very sharp monetary tightening".
The latter factor, in particular, is likely to significantly exacerbate the UK's economic misery in the coming days: on Thursday, the Bank of England is set to increase its benchmark interest rate a further 50 basis points to 4% — its tenth interest rate hike since December 2021.